U.S. stocks suffered large losses and registered the first weekly decline of 2018 as Treasury yields on the mid-to-long end of the curve rose following a strong January Labor Report. A solid gain in the average hourly earnings component fueled concerns over the future path of inflation and its influence on potential Fed rate hikes. The jobs data overshadowed a flood of mixed earnings reports, headlined by Dow member Apple, Alphabet and Amazon. The U.S. dollar was higher and gold and crude oil prices declined.
The Dow Jones Industrial Average (DJIA) plummeted 666 points (2.5%) to 25,521, the S&P 500 Index tumbled 60 points (2.1%) to 2,762, and the NASDAQ Composite dropped 145 points (2.0%) to 7,241. In heavy volume, 1.0 billion shares were traded on the NYSE and 2.6 billion shares changed hands on the NASDAQ. WTI crude oil dipped $0.35 to $65.45 per barrel and wholesale gasoline declined $0.02 to $1.88 per gallon. Elsewhere, the Bloomberg gold spot price moved $17.44 lower to $1,331.34 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.5% to 89.18. Markets were sharply lower for the week, as the DJIA dropped 4.1%, the S&P 500 Index fell 3.9% and the NASDAQ Composite declined 3.5%.
Nonfarm payrolls rose by 200,000 jobs month-over-month (m/m) in January, compared to the Bloomberg forecast of a 180,000 increase. The rise of 148,000 seen in December was revised to a gain of 160,000 jobs. Excluding government hiring and firing, private sector payrolls increased by 196,000, versus the forecasted gain of 181,000, after rising by 166,000 in December, revised from the 146,000 increase that was initially reported. The Labor Department said employment continued to trend up in construction, food services and drinking places, healthcare and manufacturing.
The unemployment rate remained at 4.1%, matching estimates, while average hourly earnings were up 0.3% m/m, above projections of a 0.2% gain and versus December’s upwardly revised 0.4% increase. Y/Y, wage gains were 2.9% higher—the largest gain since 2009—north of estimates of a 2.6% increase and compared to December’s upwardly revised 2.7% rise. Finally, average weekly hours dipped to 34.3 from December’s unrevised 34.5 rate, where it was expected to remain.
The final January University of Michigan Consumer Sentiment Index was revised higher to 95.7, from the preliminary level of 94.4, above forecasts of 95.0 but below December’s level of 95.9. Compared to last month, the expectations component of the survey improved, while the current conditions portion fell. The 1-year inflation outlook remained at December’s 2.7% rate, and the 5-10 year forecast ticked higher to 2.5% from 2.4%.
Factory orders rose 1.7% m/m in December, above expectations of a 1.5% gain, and matching November’s upwardly revised increase. Stripping out the volatile transportation component, orders grew 0.7% and November’s gain was revised higher to 1.1%. December durable goods orders—preliminarily reported last week—were unadjusted at a 2.8% gain. Also, nondefense capital goods orders excluding aircraft, a gauge of business spending, were revised lower to a 0.6% decline from the initially-reported 0.3% decreased.
Treasuries finished mixed following the employment data, which appeared to cause some concerns about the amount of rate hikes by the Fed this year after this week’s Fed monetary policy decision noted a pickup in inflation.
Schwab Center for Financial Research – Market Analysis Group
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